"What is a good cost per lead?" might be the most common question in paid advertising, and the most misleading. A Rs. 2,000 lead can be a bargain for an industrial supplier and a disaster for a restaurant. The right target comes from your own numbers.
The formula
Maximum cost per lead = (profit per customer x share you are willing to spend) / leads needed per customer
Three inputs:
- Profit per customer: gross profit from the first order, or from the first year if customers reorder.
- Share you will spend on acquisition: many businesses start with 20% to 40% of first-year profit.
- Leads per customer: how many enquiries your team needs to win one sale. If one in eight buys, it is eight.
Worked example 1: B2B supplier
A packaging supplier earns about Rs. 1,20,000 gross profit from a new customer in the first year. They are happy to spend 25% of that to win one: Rs. 30,000. Their sales team closes one in ten qualified leads. Target cost per lead: Rs. 3,000. Anything below that is profitable growth.
Worked example 2: local clinic
A physiotherapy clinic earns Rs. 8,000 profit from an average patient. They will spend 30%: Rs. 2,400. One in four enquiries books a course of treatment. Target cost per lead: Rs. 600.
Worked example 3: US service company
A US home services firm earns $2,000 profit per job and spends 20% to acquire: $400. One in five leads converts. Target: $80 per lead. The same logic works in any currency.
Why cheap leads can be expensive
A campaign bringing Rs. 150 leads that never buy is worse than one bringing Rs. 1,500 leads that close at 20%. Always compare campaigns on cost per customer once you have enough data. See how in tracking which ad brought which customer.
How to lower cost per lead without lowering quality
- Sharpen the offer so the right people have a reason to act now.
- Improve the landing page: speed, clarity and a short form. Our checklist helps.
- Test more creatives and keep the ones that bring qualified leads.
- Reply faster. Faster follow-up raises close rate, which raises the cost per lead you can afford.
What if you don't know your close rate yet?
Start with a conservative guess, run campaigns for 30 to 60 days and track every lead to an outcome. After that you will have real numbers, and the target becomes a fact instead of a guess. Our free ad budget estimator can help you model the first month.